Unemployment rate hits 5-year low

The unemployment rate reached its lowest level in five years on Friday, painting a brighter picture of a U.S. economy that is gaining strength half a decade after the onset of the 2008 financial crisis.

The economy added 203,000 jobs in November while the unemployment rate dropped to 7 percent, the Labor Department reported on Friday. The last time that the unemployment rate stood below 7 percent was in November 2008.

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The number of jobs added beat expectations — economists had expected about 180,000 jobs to be added in November, according to a Bloomberg survey. The stock market rallied on the strong data, with the Dow Jones Industrial Average closing Friday afternoon almost 200 points higher.

Friday’s jobs report offered a clean look at the state of labor market following an October report that was distorted by hundreds of thousands of federal workers that were briefly furloughed during a 16-day government shutdown.

The November report also serves as an important prelude to the next meeting of the Federal Reserve’s policy setting committee on Dec. 17-18. The gathering of the Federal Open Market Committee will once again be closely watched to see if the central bank will begin pulling back, of tapering, its $85-billion-per-month in asset purchases, known as quantitative easing. The policy has helped keep interest rates low in hopes of spurring on economic growth and lowering unemployment.

“This could be the make-or-break moment for the Fed, whether or not they start tapering asset purchases at the December Fed meeting,” Carl Riccadonna, senior U.S. economist at Deutsche Bank, said in an interview before the jobs number was released on Friday. “If we get 185,000 [jobs added] or higher, I think there’s a real good chance that the Fed can pull back on asset purchases as early as December.”

Gary Stern, the former president of the Minneapolis Federal Reserve, said Congress’s ability to avoid another fiscal crisis was the last missing piece of the puzzle before the central bank decides to hit the brakes on its easy money policies.

“The ingredients are in place for tapering,” Stern said on CNBC. “I think if we can get some of the budget uncertainty behind us, they would go ahead because I think the stars are aligned.”

Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.), the chairs of the House and Senate budget committees, are working to craft a budget deal under a Dec. 13 deadline that would avoid another government shutdown while replacing some of the across-the-board-spending cuts known as the sequester.

The Obama administration hailed Friday’s report as positive news for the economy, but cautioned that the ongoing recovery remains fragile.

“Today’s jobs numbers show that too many Americans who have been unemployed for 27 weeks or longer are still struggling to find jobs,” Jason Furman, chairman of the Council of Economic Advisers, said in a statement. “That is why the President is calling on Congress to pass the extension of emergency unemployment insurance before it expires at the end of the year, just like they have always done when long-term unemployment remains elevated.”

Republicans said the improving jobs market is reason to further back off government aid for the economy.

“Today’s report includes positive signs that should discourage calls for more emergency government ‘stimulus,’” Speaker John Boehner (R-Ohio) said in a statement. “Instead, what our economy needs is more pro-growth solutions that get government out of the way.”

The November jobs report follows several indications that the economic recovery is gaining strength after shuffling along in the aftermath of the recession.

Earlier this week, third quarter GDP growth was revised up to 3.6 percent from the initially reported 2.8 percent. The upward change was largely attributed to businesses accumulating inventory – usually a red flag of supply outstripping demand. But some economists shrugged off the inventory overload, saying it was a sign of businesses normalizing operations after keeping stock rooms bare through a period of economic uncertainty.

In another positive sign, the number of jobs created for the months of September and October were revised, adding an additional 8,000 jobs than previously reported for those two months. The September jobs tally was revised from 163,000 to 175,000, while the October figure was changed from 204,000 to 200,000.

The sectors that saw the strongest jobs gains in November were transportation and warehousing, which added 31,000 jobs; health care, which saw 28,000 additional jobs; and manufacturing, which added 27,000 jobs. The labor force grew by 455,000 in November, following a 720,000 decline in October that was partly caused by the government shutdown.